Sometimes we all need to step outside for a moment, take some air and review the situation with a calm head and a clear focus. This is undoubtedly true right now, as the economic disruption and market volatility generated by the pandemic plus the associated negative news flow is creating a barrier that makes it harder to see the bigger picture.
Let’s pause, then, and look at the facts from an Asian perspective. The first thing to point out is that Asia, as a region, is not homogenous, and recent events from trade tensions to the pandemic have affected different markets in a variety of ways. The truth is, the picture is not universally negative. In our view it is to say that some markets, such as Hong Kong and Singapore, endured greater short-term pain than others. But it may also surprise you to know that some markets (China, Vietnam and Indonesia) should emerge from the “crisis” with their GDP for 2020 in positive, or close to positive, territory (see chart below).
Better income – Preferred securities
Over the past three years, preferred securities showed slightly higher volatility than US Treasuries, but less volatile than other rate-sensitive assets like US mortgage-backed securities (MBS) and US investment-grade bonds. Preferreds also demonstrated a relatively better return than US Treasuries, MBS and investment-grade bonds.
Hong Kong/Mainland China market update
Mainland China’s Third Plenum 2024 concluded with structural reforms in key areas, and the government introduced some concrete measures. The Greater China Equities Team believes that mainland China is focusing not only on long-term structural reform but also on short-term economic targets. The series of fiscal and monetary announcements, along with greater subsidies and infrastructure spending, should support a faster recovery in domestic demand.
Better income: Global multi-asset diversified income
The Global Multi-Asset Diversified Income approach remains focused on generating higher, sustainable natural yields from a range of assets with lower correlations and expected relatively lower volatilities.
Once we move into 2021, it seems most markets in Asia will likely enjoy robust GDP growth, led again by the emerging territories that will be bolstered by the strength of their underlying economic fundamentals.
Although GDP is a measure of what has gone before, and investors invariably look to the future, a period of healthy growth does instil confidence. It can encourage people to participate in the market – especially when they see economic expansion resulting in improving company earnings and, consequently, rising prices.
In our view it is also true to say that a flourishing portfolio is a well-diversified one. Currently, many people prefer to invest in their home market, as this is where their comfort zone lies. However, with confidence rising in the economic prospects and diversity of the wider Asian region, we believe investors now have an opportunity to spread their wings and explore other markets. We expect this would deliver greater portfolio diversification through exposure to different markets, asset classes, sectors and industries.
Earlier, we noted that despite a lack of clarity on the bigger picture, our daily lives will still go on. As such, one should remain cool and calm to face any challenges, plan for the future, and maintain diversification.
1 Source: Government websites, as of 22 July 2020. International Monetary Fund – World Economic Outlook Update, April 2020 and June 2020. 2020 Q1 actual GDP: Vietnam: 3.82%; India: 3.1%; Indonesia: 2.97%; Taiwan: 1.59%; South Korea: 1.4%; Malaysia: 0.7%; Philippines: -0.2%; Singapore: -0.3%; Japan: -0.6%; Thailand: -1.8%; Euro area: -3.6%; US: -5%; China: -6.8%; Hong Kong: -8.9%. All figures show year-on-year change, with the exception of US, Euro area and Japan 2020 Q1 GDP showing quarter-on-quarter change. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline or other expectations, and is only as current as of the date indicated. There is no assurance that such events will occur, and may be significantly different than that shown here. The information in this material including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
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